Controversy Surrounds Pipeline's Future

China's $ 5.2 billion, 4,000 km, west-east pipeline will be...

China's $ 5.2 billion, 4,000 km, west-east pipeline will be up and running by October 31, a government official says. The pipeline will be functional a year ahead of schedule, said Zhang Guobao, head of the energy department at the State Development and Reform Commission, China's top planning ministry.

PetroChina, the country's top oil and gas seller, had secured 20 sales contracts for gas from the pipeline, Mr Zhang said on the sidelines of the NPC session in Beijing. Royal Dutch/Shell Group, Exxon Mobil and OAO Gazprom had not yet reached any agreements on partnerships with PetroChina on the venture, he said.

The three companies agreed in July 2002 to buy a combined 45 per cent stake in the pipeline. They were still in talks about forming a venture to jointly establish and operate the pipeline, Mr Zhang said. However, the sticking points in the talks were the length of the contract and how to divide the resources, he said.

He said foreign investors had already made several small investments related to the project. But the fact Mr Zhang did not mention any major investments will fuel widespread speculation that a significant involvement by foreign companies is unlikely.

"In the development of upstream gas fields, foreign technicians have joined in the discussions," said Mr Zhang. "We've also invited foreigners as supervisors. All the projects have been open to international tender. Furthermore, a number of cities have reached agreement for foreign investment in construction of the pipeline in their cities."

PetroChina chairman Ma Fucai later said the company would soon meet potential foreign investors.

The comments were interpreted by one analyst as a signal that the collapse of talks may be imminent.

"This is highly significant," said one Beijing-based oil analyst. " Mr Zhang is playing up the foreign involvement in small parts of the deal. But he is glossing over the hanging question, which is what investment stake the foreign companies will have in financing the pipeline itself."

Xie Geguo, deputy general manager of West-East Gas Pipeline Company, under PetroChina, said: "PetroChina will continue to take on the construction of the project alone until the partners complete talks and form the venture."